Surety bonds serve diverse functions during a typical construction or renovation project and it’s not uncommon for a job to have several different surety bonds, each serving different purposes. In the case of a Supply Bond, contractors purchase these from a company who specializes in the sale of surety bonds (this is done before the work has begun as part of the contract phase of the job).
During the course of nearly all of these types of projects every party will, at some point, have some involvement with bonds of this nature. All bonds do share one common goal; to protect the homeowner from financial crisis should a contractor fail to perform in accordance with an agreed upon contract.
All surety bonds are basically taken out as part of the contract negotiation process, prior to any work commencing. The contractor pays for the purchase of the bond. If there is an issue with the contractually agreed upon work and one party files a claim against the bond, the contractor must pay the claim. Alternatively, in some cases, the surety bond Massachussetts company who executed the bond steps in and finds another party to complete the work or provide some form of compensation.
There are different types of construction surety bonds
A bond is a guarantee that the supplier will provide all the contractually obligated supplies and materials. Federal law requires construction bonds for projects in most states in an amount over $100,000, though each state has varying thresholds. There are many different types of bonds, each for a different purpose:
- Bid bonds
They ensure that any bid for the job has been submitted in good faith and that supplies and labor will be provided at the quoted rates.
- Performance bonds
These provide assurance that the contractor will perform the contract according to its terms and conditions and protects the owner from financial loss should there be a problem.
- Supply Bonds
A supply bond guarantees a supplier will be able to provide the materials need to fulfill the contract between the supplier and purchaser.
- Payment bonds
These bonds are in place to make sure that the main contractor on the job will pay any subcontractors for time and material spent on the job. There are others but these are among the most common.
The company evaluates the contractor’s financial fitness and credit score in order to determine if the contractor can cover the face value of the bond should there be a claim against it. A Supply Bond is usually a bit easier to obtain than the standard construction bond, and is slightly less expensive, but rates vary widely based on the size of the job and the contractor’s financial status.